Charitable Indians Worry About Accountability

When Bain & Co. issued its first report on the state of Indian philanthropy a year ago, there was widespread handwringing among the rich in this country. There, clearly documented, was the fact that wealthy Indians give a lot less to charity than their American or British counterparts.

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Warren Buffett and Melinda Gates visited India in March this year and coaxed their rich Indian peers to part with some of their wealth for charity.

It was, quite frankly, embarrassing, but it began to spur soul-searching among higher income Indians about what was amiss. That self-examination seemed to come to a head, somewhat defensively, in the discussion that took place during Warren Buffett’s visit a few months ago.

Now, a year later, Bain is out with a follow-up report that shows an increase in giving in India in recent years compared to 2006, the same year the previous study used for comparison. There has been a 50% increase in calendar year 2010 in private charitable giving—as a percentage of the gross domestic product—compared to 2006, according to Arpan Sheth, a partner at Bain who co-wrote the study along with Madhur Singhal. Mr. Sheth presented it on Wednesday at a meeting in Mumbai of the Indian Philanthropy Forum, an initiative of Dasra, a nonprofit that helps donors and charities with strategy.

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On the positive front, annual private giving in India has increased almost threefold to between $5 billion and $6 billion in 2010, from $2 billion in 2006, Mr. Sheth said. Corporations in India gave an estimated $1.5 billion last year, five times the amount donated in 2006, an increase that is faster than the pace of their rise in profits, he added.

Still, private giving in India accounts for only between 0.3% and 0.4% of the gross domestic product, significantly behind the United States, at 2.2%, and the United Kindom, at 1.3%, he said. But among developing nations, India is one of the leaders, ahead of China and Brazil, he said.

High net worth individuals in India give between 1.5% and 3% of their household income annually to philanthropy, less than their counterparts in the United States, who give an average of 9%, Mr. Sheth said.

But more than documenting the rise in philanthropy, the Bain report tried to explain what holds back the richest Indians from giving more.

The answer, according to Mr. Sheth, based on interviews and surveys of 300 wealthy individuals, lies in:

Donors’ concern about the accountability and transparency of the NGOs and whether the money is being used optimally and for the declared purposes

Donors’ lack of awareness of charitable organizations that match their interests

Tax laws that don’t encourage charitable giving as much as some western countries’ do

To increase the rate of giving, Mr. Sheth recommends:

Nonprofits should invest more in hiring the talent to improve their financial reporting and accountability

Nonprofits should find ambassadors for their causes to help high net worth individuals find causes that resonate with them

Philanthropic groups should lobby for changes in tax laws that encourage giving

India’s enormous social problems that persist in the face of huge increases in wealth makes an increase in giving essential because government alone cannot bridge the divide, Mr. Sheth said.

He says the increased giving in recent years can be attributed to the rich getting richer—and also younger and more Westernized. Those who have studied abroad, in particular, are more eager to participate in charitable giving.

In the past two years, the top 20 Indian billionaires doubled their combined wealth, he said. And there are 152 Indian corporations with market capitalization of more than $1 billion today, he said, where in 2006 there were only 85.

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